The Bank of the Philippine Islands (BPI) is urging the Bangko Sentral ng Pilipinas (BSP) to deliver a calibrated interest rate increase while calling on executive agencies to roll out immediate supply-side reforms, following the central bank’s warning late Wednesday that the economy faces a difficult mix of high inflation and slowing growth.
In its reaction to the BSP statement, BPI clarified that while the country is not technically in stagflation—a long-term structural breakdown marked by permanent stagnation, high joblessness, and runaway prices—it is enduring a severe cost-push squeeze. Sharp supply shocks and sticky core inflation are colliding with weaker economic momentum, a combination that steadily erodes the purchasing power of Filipino households and requires urgent, coordinated government action.
The bank warned against halting interest rate adjustments too early, even as growth struggles to recover and BSP Governor Eli Remolona previously signaled that tightening would stop once inflation moves convincingly toward the 3 percent target. With headline inflation at 7.8 percent, core inflation at 5.4 percent, and the real policy rate sitting deep in negative territory at minus 2.3 percent against a 5.50 percent nominal rate, BPI said pausing now risks letting higher price expectations take root and triggering wider wage and price hikes across the economy.
For ordinary families and local businesses, maintaining a steady monetary stance matters because unchecked inflation quietly shrinks household budgets, raises everyday living expenses, and creates unpredictable operating costs for companies. While higher borrowing costs carry near-term trade-offs for consumers and borrowers, BPI noted that keeping real interest rates positive helps steer capital away from unproductive ventures and toward vital, high-earning sectors such as agribusiness, cold storage, and manufacturing.
BPI emphasized that monetary policy alone cannot fix supply shortages, noting that while rate hikes do not grow rice, pausing prematurely could entrench inflation. By signaling that it will not simply absorb unaddressed price pressures, the central bank pushes other government agencies to resolve physical supply bottlenecks rather than leaving interest rates to carry the entire burden of stabilizing the economy.
To ensure further tightening does not overly dampen domestic activity, BPI called on non-BSP government agencies to aggressively implement targeted public-sector interventions. These include providing direct fuel subsidies, transit vouchers, and cash transfers for public utility vehicle drivers, delivery riders, and daily-wage construction workers to shield their incomes without fueling broad demand-driven price spikes.
The bank also recommended clearing logistical bottlenecks through dedicated food green lanes, temporary toll rebates for food freight trucks, and faster port clearances to cut transport markups from the provinces to urban centers. Alongside these measures, BPI urged expanding public-private partnerships to subsidize electricity for regional cold-storage warehouses to curb 20 to 30 percent post-harvest food losses, while accelerating delayed spending on high-impact public infrastructure with strict fiscal discipline.
